- 1.Wildfire Roadmap to Recovery:Meeting #8, February 21, 2008 Rancho Bernardo Community Presbyterian Church Tax Issues:Personal Property & Real Property
2. Fine print:
- The information provided in this program is intended for general educational purposes only.It should not be construed as legal advice.
- The speakers at todays program are volunteering their time as educators.
- Neither United Policyholders nor the Rancho Bernardo Community Presbyterian Church endorse or warrant the quality or services of any volunteer speakers.
3. Income Tax Issues & Real Property Tax Issues
- Background:For 03 Cedar Fire Survivors, there was much confusion/misunderstanding regarding both of these issues
4. Knowledge is power
- THANK YOUTO TONIGHTS SPEAKERS FOR HELPING EVERYONE AVOID COMMON PITFALLS
- Jeff Olson, San Diego County Assessors Office
5. Income Tax Implications Alan Clopine, CPA
- On 10/29/07, the IRS granted tax relief for Southern California Fire Victims
- Affected taxpayers can claim disaster-related casualty losses on their federal income tax returns in either 2006 or 2007
- If you claim the disaster loss on last years return, put the disaster designation California Wildfires at the top of the form
6. Calculating the Disaster Loss
- FIRST:Determine the adjusted basis in the property before the disaster loss (generally the original purchase price PLUS improvements LESS depreciation deducted)
- SECOND:Determine the decrease in fair market value of the property as a result of the disaster loss.(Appraisals of the property both BEFORE and AFTERthe disaster loss are a good idea)
- THIRD:From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you received or expect to receive.
- Figuring the Disaster Loss Deduction: An Example
- Adjusted basis of property $500,000(A)
- FMV before disaster loss $850,000
- FMV after disaster loss $250,000
- Decrease in FMV $600,000(B)
- Loss [smaller of (A) or (B)] $500,000
- Subtract insurance received $375,000
- Loss after reimbursement $125,000
- (Note: This $125,000 lossmust be in excess of 10% of adjusted gross income to receive a tax benefit ).
8. How To Take The Loss
- The Prior Example Showed a Loss of $125,000
- This loss may be deducted on the taxpayers 2007 return (to be filed by 4/15/08)
- The loss may be deducted on the taxpayers 2006 return(file an amended return for 2006)
- THIS MUST BE FILED BY APRIL 15, 2008
- The taxpayer decides which year the deduction is more beneficial
9. What If I Havent Received My Insurance Proceeds Yet?
- You should estimate the amount you expect to receive in insurance proceeds.
- If you later find the insurance reimbursement was different that what you expected, you adjust your return in the year received.
10. Can I Have A Gain Even Though Ive Lost My Home?
- Yes, if your insurance reimbursement exceeds thelowerof your adjusted basis and decrease in FMV, you have a gain.
- HOWEVER, that gain is not currently taxable if you build a replacement property:
- Main home : replace within four years after the close of the first tax year in which your gain is realized
- Other property : replace within two years after the close of the first tax year in which your gain is realized.
11. Additional Resources
- IRS Publication 2194(Disaster Losses Kit for Individuals). This publication has good worksheets to help quantify your property losses.www.irs.gov
- IRS Publication 547(Casualties, Disasters, and Thefts).www.irs.gov
- FTB Publication 1034(Disaster Loss).www.ftb.ca.gov
- Call Alan Clopine, CPA at Centara Capital (619) 398-1700.http://www.centaracapital.com/company/bio-aclopine.html
12. Under state law, the Assessor must reassess property upon new construction
- Excluded from the definition of new construction is any timely reconstruction where the property after reconstruction issubstantially equivalentto the property prior to damage or destruction.
- However, State law ALSO provides that any reconstruction that isnot substantially equivalentto the damaged or destroyed property shall be deemed to be new construction andonly that portion that exceeds substantially equivalent reconstruction shall have a new base year value .
13. Know the facts
- There has been a common misconception that calamity victims can build up to 500 additional square feet without incurring additional property taxes.
14. Additional square footage is subject to reassessment at market value
- For property tax purposes,
- anysquare footage that is aboveand beyond what existed prior to the calamity is subject to reassessmentat market value.
15. Also subject to reassessment
- Anything that is built after the calamity that did not exist or was not assessed prior to the calamity is subject to reassessment.
- For example:Air conditioning, additional bathrooms, patios, decks and garages
16. Improved quality is reassessable
- When the quality of newly constructed structures issubstantially greaterthan that which was lost, this difference in value is also reassessable.
17. Construction which is above and beyondwhat existed and was assessedbefore the calamity is reassessed at market value.
- Therefore, when assessing new construction after a calamity, the Assessors Office is required to compare the structures that were damaged or destroyed with the new replacement structures.
18. Assessment of pre-calamity structures
- In order to receive credit for pre-calamity structures, the structures must have been present in the Assessors records and assessed on the property tax roll.
- For example, if a taxpayer lost a garage in a fire, but the garage was built without a permit and was never assessed for property taxes, no credit would be given and the rebuilt garage would be reassessed at market value.
- The structures that were a part of the tax records before the calamity shall retain their original base assessment.
19. If you have further questions
- Contact the Assessors Office at (619) 505-6262
20. Our heartfelt thanks to:
- Rancho Bernardo Community Presbyterian Church
- All our UP Mentors and Sponsors
- The speakers at tonights meeting
21. Break Out Sessions for Fire Survivors
- Open to 9:30 pm: Firm Stop time
- Allstate : Upper Courtside East
- USAA: Small room off lobby (see D Shalinsky)
- Other Companies: Sanctuary